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GBPUSD Reaches A Sentiment Extreme

By , Forex Trading Instructor
13 September 2013 19:00 GMT

SSI (Speculative Sentiment Index) is a proprietary tool offered to FXCM clients that can act like a compass used to navigate the foreign exchange market. Once mastered, traders will have the ability to add SSI as a component to any working strategy. So let’s take a moment to get familiar with this resource.

  • What is SSI
  • How to Read SSI
  • Trading with SSI

SSI is a calculated ratio that gives us a snapshot of trader positioning while giving hints on market direction. SSI reveals trader positioning by determining if they are net long or short a currency pair, and if so by how much. Let’s take a look at this hand

Below we can see the current SSI ratios posted on DailyFX.com. If clients are net short a currency pair SSI will be negative, and if clients are net long the number will be positive. As of this morning, we can see that SSI for the GBPUSD is currently set at -3.16. This ratio means that trader positioning is net short at a rate over 3 to 1 when compared to all open buying interest.

So now that we know how to read SSI, let’s discuss how these numbers can be used in our trading.

GBPUSD_Reaches_A_Sentiment_Extreme_body_Picture_3.png, GBPUSD Reaches A Sentiment Extreme

Trading SSI

SSI is an exceptional trading tool based around the psychology of traders. Traditionally most Forex traders adhere to the old “buy low, sell high” adage. However, when most traders look to pinpoint a market top or bottom they end up fading some of the markets biggest trends! Because of this, SSI is often considered a contrarian indicator. Savvy traders that review SSI can then proceed to look for busy signals when SSI is net long or buy when SSI net short for a specific currency pair. Let’s take a look at an example of SSI at work.

Below we can see a prime example of SSI at work again on the GBPUSD. Going back to the start of July, we can see that positioning on the GBPUSD has moved from an extreme net long to most positions being short. However when compared to the price graph, we can see that as traders began selling the pair has advanced over 1000 pips for the same time period! The current reading of SSI stands at -3.18. As more traders continue to sell into this market advance, SSI data suggests that the GBPUSD uptrend may continue to surge towards higher highs!

Learn Forex – Current GBPUSD SSI

GBPUSD_Reaches_A_Sentiment_Extreme_body_Picture_2.png, GBPUSD Reaches A Sentiment Extreme

Automated SSI Trading

For those traders looking to use SSI but do not have an existing strategy, FXCM offers a variety of automated trading applications and solutions. Whether you trade trends, breakouts or momentum there is a system available for all market conditions. The easiest way to get started trading a SSI system is through our Mirror Trader Platform (Free with an FXCM Account).

Using the Mirror Traders software, Traders can select from a variety of automated strategies. This includes SSI strategies provided by DailyFX which includes the Momentum 2 and Breakout 2, and Tidal Wave strategies. These strategies can be applied at any time, while allowing traders the ability to customize position size and currency pair selection.

GBPUSD_Reaches_A_Sentiment_Extreme_body_Picture_1.png, GBPUSD Reaches A Sentiment Extreme

---Written by Walker England, Trading Instructor

To contact Walker, emailwengland@fxcm.com. Follow me on Twitter at @WEnglandFX.

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13 September 2013 19:00 GMT